Sunday, June 06, 2010

Spinning the bank tax "win"

This was a bit of remarkable spin gracing the headlines on Saturday:"Canada wins key fight against bank tax." As we saw this week as Harper travelled to Britain and France, nations are going their own way on a bank tax. So to see this plan take shape that allows countries to do what they want painted as a "win" for Harper is just domestic political spin that's being lapped up. The G20 is a cooperative body and would never have required Canada to impose a bank tax. The G-20 in April of 2009 produced a similar result on stimulus spending:

"In the end, the leaders also papered over one of their most public disputes: whether countries around the world should commit to even greater fiscal stimuli than they had already enacted.

France and Germany balked at American pressure, saying their social safety nets accomplished much of the goal. Mr. Obama largely surrendered the point, agreeing to vague wording that allowed nations the leeway of promising to take whatever steps were necessary for “sustained growth.”"

This is how this group operates, consensually on the big issues, Canada never would have been forced to implement a bank tax.

But having said that, Kevin Carmichael makes a good point on what's come out of the G20 Finance Ministers' communique in advance of the G20 meetings:

...but Mr. Flaherty’s successful fight against a levy isn’t a clean win for Canada’s banks. Canada still will be under pressure to live up to its commitment to protect taxpayers from bank bailouts, especially if European countries proceed with their promised levies. There is a risk that financial institutions will flee to non-tax jurisdictions, which is why the G20 statement emphasizes the need to maintain a level playing field. If Canada does nothing to ensure its banks pay a “fair and substantial” price to protect taxpayers from bailouts, then the Harper government risks straining relations with Europe at the same time it is trying to negotiate a trade agreement with the European Union.

This is the clause Carmichael is referencing:

agreed the financial sector should make a fair and substantial contribution toward paying for any burdens associated with government interventions, where they occur, to repair the banking system or fund resolution. To that end, recognizing that there is a range of policy approaches, we agreed to develop principles reflecting the need to protect taxpayers, reduce risks from the financial system, protect the flow of credit in good times and bad, taking into account individual country's circumstances and options, and helping promote level playing field. The IMF will deliver their final report at the Toronto Summit.

So while there is still permissiveness in the agreement on the bank tax as it is one of "a range of policy approaches," we nevertheless will have to help "promote level playing field" in some way, on a consensual basis, of course. Do we still "win?"